Greece’s debt crisis: Chinese whispers drive up Greek yields

Greece, Portugal Debt Concerns Start to Infect Companies, Banks (Bloomberg):

Jan. 28 (Bloomberg) — Investor concern about the ability of Greece and Portugal to lower their budget deficits is starting to hurt the debt of national utility companies and banks.

The cost to insure Greek sovereign debt against default surged to a record today, spurring a rise in credit-default swaps on Hellenic Telecommunications Organization SA and National Bank of Greece SA. Swaps on Portugal Telecom SA and Energias de Portugal SA jumped as the perceived risk of holding their government debt rose.

“If you fear a Greek crisis then you should not only avoid government bonds but corporates as well,” said Philip Gisdakis, head of credit strategy at UniCredit SpA in Munich. “And if you fear Greece you should also fear Portugal and Spain.”


Chinese whispers drive up Greek yields

George Papandreou
Greek Prime Minister George Papandreou speaks during an economic policy speech aimed to soothe international markets increasingly worried by the country’s ballooning public debt and budget deficit, in Athens. (AP)

(Financial Times) — Greece’s debt crisis returned to financial markets with a vengeance as agitated investors demanded the highest premiums to buy its government bonds since the launch of European monetary union over a decade ago.

The yield spread between 10-year Greek bonds and benchmark German Bunds widened dramatically on Wednesday, by almost 0.7 percentage points at one point, in what one trader called a “capitulation” to sellers worried about Greece’s ability to refinance its debt.

The mayhem unfolded after Greece denied it had given a mandate to Goldman Sachs, the US investment bank, to sell government debt to China. Greek 10-year bond yields closed at 6.70 per cent, 0.48 percentage points up on the day.

The Financial Times reported on Wednesday that Athens was wooing Beijing to buy up to €25bn of government bonds in a deal promoted by Goldman. China had not yet agreed to such a purchase, the FT said.

The government’s comments unsettled markets because of their implication that China, with $2,400bn in foreign exchange reserves, was not interested in increasing its exposure to sovereign Greek debt.

Experts, though, said that heavier Chinese purchases of Greek debt would be no less disturbing. For the eurozone, “a member country implicitly rescued by China would be an even worse signal than an IMF programme,” said Marco Annunziata, chief economist at Unicredit.

The Greek finance ministry said Athens wanted to diversify its sources of funds, and meetings with institutional investors would continue in Athens as well as the US and Asia.

Shares in Greek banks tumbled after Greece’s denial that it had mandated Goldman. The yield spread on Portuguese and Italian government bonds widened as traders fretted about other peripheral eurozone countries with high public debt and rising budget deficits.

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ECB: No Bailout For Greece

george-papandreou
Greece’s Prime Minister George Papandreou holds a news conference at the end of a European Union heads of state and government summit in Brussels October 30, 2009 file photo. (REUTERS)

ATHENS/MILAN (Reuters) – EU officials arrived in Greece on Wednesday for an inspection visit, hours after ECB Executive Board member Juergen Stark was quoted as saying the bloc would not bail out Greece if its debt problem worsened.

The government’s broad outline of how it will get out of its fiscal mess has not impressed markets, making the talks with Brussels on the details of a long-term budgetary plan Greece must submit by end January a sensitive point for investors.

“The EU officials are here (at the finance ministry), they are looking at the draft of the plan,” a senior finance ministry official said. “They will meet in the coming days officials from the health, labour, defence, and economy ministries.”

In a sign of increasing pressure on Greece to get its finances back in order, Stark told Italian newspaper Il Sole 24 Ore that EU states would not help out.

“The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece,” Stark said in the newspaper.

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The revolt has begun: Greece defies Europe as EMU crisis turns deadly serious

Euroland’s revolt has begun. Greece has become the first country on the distressed fringes of Europe’s monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation.

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George Papanderou, the Greek prime minister, faces potential riots if he cuts spending to address the deficit

While premier George Papandreou offered pro forma assurances at Friday’s EU summit that Greece would not default on its €298bn (£268bn) debt, his words to reporters afterwards had a different flavour.

“Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state,” he said.

Were we to believe that a country in the grip anarchist riots and prey to hard-Left unions would risk its democracy to please Brussels?

Mr Papandreou has good reason to throw the gauntlet at Europe’s feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating. Public debt is already 113pc of GDP. The Commission says it will reach 125pc by late 2010. It may top 140pc by 2012.

If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral.

Ireland may just pull it off. It starts with lower debt. It has flexible labour markets, and has shown a Scandinavian discipline. Mr Papandreou faces circumstances more akin to those of Argentine leaders in 2001, when they tried to cut wages in the mistaken belief that ditching the dollar-peg would prove calamitous. Buenos Aires erupted in riots. The police lost control, killing 27 people. President De la Rua was rescued from the Casa Rosada by an air force helicopter. The peg collapsed, setting in train the biggest sovereign default in history.

Economists waited for the sky to fall. It refused to do so. Argentina achieved Chinese growth for half a decade: 8.8pc in 2003, 9pc in 2004, 9.2pc in 2005, 8.5pc in 2006, and 8.7pc in 2007.

Read moreThe revolt has begun: Greece defies Europe as EMU crisis turns deadly serious